Price-to-FFO (funds from operations) multiple
The most common way to calculate the relative value of an REIT (real estate investment trusts) such as CBL & Associates Properties (CBL) is the price-to-FFO (funds from operations) multiple. FFO is widely used because it is the main earnings metric for REITs, similar to EPS (earnings per share) in other industries. The price-to-FFO multiple is equivalent to the price-to-earnings multiple used in other industries.
Peer group comparison of price-to-FFO multiples
A closer look at CBL’s (CBL) trailing-12-month price-to-FFO multiple shows that it is in line with its historical valuation. Over the last seven years, CBL’s (CBL) price has ranged between 0.7x and 13.8x of its FFO, with a current price-to-FFO multiple of around 6.2x. In 2009, CBL (CBL) experienced its lowest price-to-FFO multiple, and in November 2010, its highest.
At the current multiple, CBL’s (CBL) stock is trading at a lower multiple than its peers. The industry average price-to-FFO multiple is 15.7x, with General Growth Properties (GGP) trading at 18.9x, and Simon Property Group (SPG) at 18.7x. Taubman Centers (TCO) is trading at a much higher multiple of 23.3x, and Pennsylvania REIT (PEI) at 16.2x.
High dividend yields in peer group
Historically, a lower price-to-FFO multiple for CBL (CBL) indicates that it was not able to provide consistent capital value return on its properties despite providing a higher dividend yield. Currently, CBL (CBL) offers a dividend yield of 5.2%, which is higher than that of its closest competitors. For example, Simon Property Group (SPG) offers a dividend yield of 3.4%, followed by Taubman Centers (TCO) at 3.3%, and General Growth Properties (GGP) at 2.9%. CBL (CBL) forms 0.4% of the SPDR Dow Jones REIT ETF (RWR).
In the next part of this series, we’ll discuss CBL’s EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple.